Where do the various trends in stakeholder management stand going into 2021? COVID-19, the racial justice movement, regulatory actions, and the political climate all pushed and pulled against each other. However, all those forces may have led to an important shift in stakeholder management. Companies have decided to set the agenda, rather than have it dictated to them by investors, proxy advisors, or public interest groups. That finding comes from Farient Advisors’ recent publication
2021 and Beyond: Global Trends in Stakeholder Incentives.
Farient looked at constituent companies in the S&P 100 and several global market indices (UK, France, Germany, Switzerland, Canada, Australia, and Singapore). Due to the definitions and sample group used, stakeholder (or ESG) metrics showed up far more widely than previous surveys, with
41% of companies (all regions) reporting a D&I metric and 21% reporting a gender balance metric. To give an indication of how this varies among surveys,
Mercer’s recent report estimated that 15-20% of S&P 500 companies use a D&I metric and 5-10% use an objective, quantifiable metric. ISS, the proxy advisory firm,
issued a report putting the number at only 3%.
Other findings from the Farient report include:
- The median weighting for stakeholder metrics in incentive plans is 20% globally and for each region with the exception of Australia (30%)
- 67% of global companies use stakeholder incentives in the compensation plan (the US is the lowest rate of the evaluated markets at 56% of companies)
- 80% of those companies use a weighted measure or a scorecard approach
- 13% use a modifier to payout levels
- 5% use board discretion
- 1% use a gateway or hurdle
The portions of the report looking at the “how” are particularly useful, such as use of weighted metrics, a scorecard, or individual performance (page 26) while the best practices list for using stakeholder incentive metrics includes several key takeaways:
- Provide enough weight to make metric meaningful (the report highlights 20%);
- Select one to three stakeholder goals consistent with the company’s culture and strategy, but which also resonate with participants;
- Set clear goals and payout leverages;
- Consider whether the short- or long-term program is appropriate for a given goal; and
- Discuss the goals prior to implementation with investors, employees, and other constituencies to ensure consistency and credibility.
